NEB Grade 12 Economics Question Paper 2080
We have presented you with class 12 economics question paper 2080 from Madhyabindu Multiple Campus of their Pre Board Examination 2080. We hope that this question paper we have provided will be of much help to you.
 |
| NEB class 12 economics notes |
 |
| NEB class 12 economics notes |
 |
| NEB class 12 economics notes |
 |
| NEB class 12 economics notes |
Class 12 Economics Question | Important
Unit - 9
Money
SHORT ANSWER TYPE QUESTIONS [5 MARKS]
1. Describe the importance of money.
[5]
The importance or significance or role or need of money can be explained as
follows:
i. Importance in consumption: Money is the medium of exchange and it also represents the general purchasing power. A consumer can buy anything with the money s/he has and at any time convenient to him/her. Money also enables consumers to spend their limited income on different goods and
services to maximize their satisfaction.
ii. Importance in production: A producer has to engage and hire various factors of production to produce goods and services. In return, the producer has to pay factor rewards to the factors of production for their contribution to the production process. These factor rewards are paid in the form of money.
iii. Importance in exchange: One of the important functions of money is facilitating the exchange of goods and services.
iv. Importance in distribution: Money also plays an important role in the process of distribution of national income among the factors of production in the form of rent, wages, interest, and profit.
v. Importance in public finance: The government receives income by way of taxes, fees, fines, etc. all of which are collected in the form of money. Similarly, the government makes payments of wages, salaries, interest, etc. in the form of money.
2. Explain any five features of money.
[5]
The qualities or characteristics of good money are as follows:
i. General acceptance: The essential quality of good money is that it should be acceptable to all, without any hesitation in the exchange for goods and
services.
ii. Portability: It is also an important quality of good money. Money should be easily transferable from one to another to making
payment and business
iii. Storability: Money should be storable and it should not depreciate with time.
iv. Divisibility: Good money is that which can be divided into small units without
losing any value.
v. Durability: Money should be durable. It should not lose its value with time. The gold and silver coins do not wear out quickly and the quality of money remains the same.
3. Describe the functions of money.
[5]
The functions of money are as follows:
i. Primary functions:
The primary functions of money are:
a. Medium of exchange:
Money has the quality of great acceptability. Therefore, it is used as the medium of exchanging goods and services.
b. Measure of value:
The second valuable function of money is to measure the value of goods and services. In other words, the price of all the goods and services is expressed in terms of money.
ii. Secondary functions:
The secondary functions of money are:
a. Store of value:
Money serves as a store of value. People can keep wealth in the form of money.
b. Transfer of value:
Money serves as the transfer of value. With the help of money, one can transfer the value of his wealth or property from one place to another
c. Standard of deferred payment:
Both borrowing and lending are done in terms of money. It is a suitable means of the standard of deferred payment.
iii. Contingent functions:
The contingent functions of money are:
a. Basis of credit:
Credit instruments are issued based on money.
b. Distribution of national income:
The factor payments are determined in terms of money. If there had not been the invention of money, it would have been very difficult to distribute the national income.
c. Liquidity and uniformity of wealth:
Money is generally a liquid form of wealth. All the forms of wealth become uniform in the form of money.
d. Maximum benefit:
Money helps producers and consumers to maximize their benefits.
4. Describe the forms of money.
[5]
Types/Forms/ Kinds of Money
The types of money are as follows:
i. Commodity money:
The commodity used as money is called commodity money or commodity standard. People have used different types of commodities as money. For example, people used animal leather and bones during the hunting age, cattle during the pastoral age, and grains during the agricultural age as money but these commodities lacked the qualities of good money. Hence, they were discarded as money.
ii. Metallic money or standard:
If metals like gold and silver are used as money, it is known as metallic money or metallic standard. In other words, the money made of metal is called metallic money. This money possessed the quality of good money, so this was used for a long time. Nowadays, the metallic money is used less commonly than the paper money. On the other hand, the use of only one metal as money is called monometalism. There are two types of metallic money. They are as follows:
a. Standard or full-bodied coin:
The face value of such money is equal to its intrinsic value.
b. Token money:
The token money is made of inferior metals like aluminum, copper, etc.
iii. Paper money:
It is issued by the government or central bank. Such money possesses a higher face value than the intrinsic value. At the present age, paper money or paper notes are widely used in almost every country in the world. Therefore, the present age is also called the age of paper money.
The paper money is an unlimited legal tender. Hence, all are bound by law to accept any quantity of paper money. It can be divided into four types. They are as follows:
a. Representative paper money:
The paper money which is fully backed up by gold and silver reserves is called representative paper money. Under the system of representative paper money, gold and silver equivalent to the value of paper money or notes are kept by the monetary authority.
b. Convertible paper money:
The paper money that is convertible into standard coins at the option of the holder is called convertible paper money.
c. Inconvertible paper money:
Under this system, the note issued is backed by some reserve in the form of gold, silver, government
securities, bonds, treasury bills, etc.
d. Fiat paper money:
Fiat paper money is also a type of inconvertible paper money. No reserve of any type is kept behind the fiat paper money.
iv. Bank or Credit Money:
The cheque drawn as demand or current deposit of commercial bank is called bank or deposit or credit money. The bank deposits can be turned into money by their depositors using cheques. In modern communities, bank cheques are used as money in transactions of goods and services.
5. Explain the concepts of demand-push inflation & cost-push inflation.
[5]
Demand-Pull Inflation
When the aggregate or total demand for goods and services exceeds the total or aggregate supply of goods and services in an economy, the general price level rises, which is known as demand-pull inflation. It is also known as the excess demand inflation. In this type of inflation, the demand pulls up the prices. The causes of demand-pull inflation are:
- Increase in money supply and bank credit
- Increase in public expenditure
- Increase in private expenditure
- Reduction in taxation
- Rapid growth of population
Cost-Push Inflation
When the cost of production increases, the general price level rises, which is known as the cost-push inflation. The cost of production increases due to a rise in the price of factors of production or inputs. The causes of cost-push inflation are :
- Increase in wages
- Increase in the price of key materials
- Increase in profit margins
Inflation
During inflation, the purchasing power of money or the value of money falls because there is an inverse relationship between the general price level and the value of money. It is usually measured as a percent per unit time, say, a year or a month. Thus, while talking about inflation, we speak of prices rising at the average rate of 10% 15%, or 20% per year. It is regarded as a major economic problem. There are two causes of inflation: an increase in aggregate demand and an increase in the cost of production.
Deflation
Deflation is defined as the situation of a fall in the general price level or an increase in the value of money. Thus, deflation is associated with falling prices in the economy. It results in many negative effects such as unemployment, overproduction, fall in economic activities, etc. in the economy. Therefore, it is more harmful than inflation. Deflation occurs during the economic depression. During the economic depression, the prices decline which adversely affects the output, economic growth, and employment in the economy.
6 . Probable Explain the causes of inflation.
There are mainly two causes of inflation which are:
i. Demand-pull inflation:
When the aggregate or total demand for goods and services exceeds the total or aggregate supply of goods and services in an economy, the general price level rises, which is known as demand-pull inflation. It is also known as the excess demand inflation. In this type of inflation, the demand pulls up the prices. The causes of demand-pull inflation are:
a. Increase in money supply and bank credit:
When the money supply increases, the rate of interest will fall. Consequently, consumption and investment expenditure will increase. This leads to an excessive increase in the demand which increases the price level.
b. Increase in public expenditure:
In developing countries like Nepal, the government spends more than its revenue. This creates a fiscal deficit. Some portion of the fiscal deficit is met by the government by printing the new notes. On account of this, the expansion of money increases and inflation occurs.
c. Increase in private expenditure:
An increase in the private expenditure is an important cause of inflation. Private expenditure includes both investment and consumption expenditures. The increase in private expenditure causes excess demand in the economy which results in inflation.
d. Reduction in taxation:
If the government reduces the rate of direct taxes (income tax, profit tax, etc.), the purchasing power of people will increase. Consequently, the consumption expenditure increases and inflation occurs.
e. Rapid growth of population:
A rapidly growing population has the effect of raising the level of aggregate demand for goods and services in the economy. This causes a rise in the general price level or inflation.
ii. Cost-push inflation:
When the cost of production increases, the general price level rises, which is known as the cost-push inflation. The cost of production increases due to a rise in the price of factors of production or inputs. The causes of cost-push inflation are:
a. Increase in wages:
In modern times, trade unions have become very strong and they have succeeded in securing higher wages for their members. This increases the cost of production and to maximize the profits, the businesspersons raise the prices of their products. It is known as the wage- push inflation.
b. Increase in the price of key materials:
Cost-push inflation is also caused by an increase in the price of key materials, such as steel, basic chemicals, petroleum, etc. It is known as the material-push inflation.
c. Increase in profit margins:
Inflation also occurs due to the organized efforts of the firms or sellers to increase the profit margin.